Auditing Principles CW4-Chapter-1-MC

AUDITING AND ASSURANCE PRINCIPLES
1. The practice of Accountancy includes

I. Practice of Public Accountancy
II. Practice in Commerce and Industry
III. Practice in Education/Academe
A. I and II only
B. II and III only
C. I and III only
D. I, 11, and III
2. CPAs in public practice who perform assurance engagements are governed by the
following, except
A. Philippine Standards on Related Services
B. Philippine Framework for Assurance Engagements
C. Code of Ethics for Professional Accountants in the Philippines
D. Philippine Standards on Quality Control
3. A proposed assurance engagement can be accepted when the practitioner’s preliminary

knowledge about the engagement circumstances indicates that relevant ethical
requirements will be satisfied and
I. The subject matter of the engagement is appropriate.
II. The criteria to be used are suitable and are available to the intended users.
III. The practitioner has access to sufficient appropriate evidence to support the
conclusion.
IV. The conclusion is to be contained in a written report.
V. There is a rational purpose for the engagement.
A. I, II, and III only
B. I, II, IV, and V only
C. I, II, III, and IV only
D. I, II, III, IV, and V
4. A practitioner should accept an assurance engagement only if

A. The subject matter is in the form of financial information.
B. The criteria to be used are not available to the intended users.
C. The subject matter is the responsibility of either the intended users or the
practitioner.
D. The practitioner’s conclusion is to be contained in a written report
5. Assurance services are best described as

A. Independent professional services that improve the quality of information, or its
context, for decision makers.
B. Services designed for the improvement of operations, resulting in better outcomes.
C. The assembly of financial statements based on information and assumptions of
a responsible party.
D. Services designed to express an opinion on historical financial statements based on
the results of an audit.
6. How many separate parties are involved in an assurance engagement?

A. 2
B. 3
C. 4
D. 5
7. When performing an assurance service, professional accountants use standards or

benchmarks to evaluate or measure the subject matter of an assurance engagement.
These are referred to in the Philippine Framework for Assurance Engagements as
A. Criteria
B. Benchmarks.
C. Standards.
D. Yardsticks.
8. Which of the following statements is true concerning evidence in an assurance

engagement?
A. Sufficiency is the measure of the quantity of evidence
B. Appropriateness is the measure of the quality of evidence, that is, its reliability
and persuasiveness.
C. The reliability of evidence is influenced not by its nature but by its source.
D. Obtaining more evidence may compensate for its poor quality.
9. Relevant criteria contribute to conclusion that are

A. Free from bias.
B. Clear and comprehensive
C. Subject to different interpretations.
D. Useful for decision making
10. Criteria that are embodied in laws or regulations, or issued by authorized or

recognized bodies of experts that follow a transparent due process are called
A. Suitable criteria
B. Established criteria
C. Specifically developed criteria
D. General criteria
11. The purpose of an audit of financial statements is to

A. Relieve management or those charged with governance of the responsibility for
the preparation and presentation of the financial statements.
B. Obtain an absolute level of assurance that the financial statements as a whole are
free from material misstatement.
C. Enhance the degree of confidence of intended users in the financial statements
D. Assure the future viability of the entity by expressing an opinion on the entity’s
financial statements.
12. The overall objectives of the auditor in conducting an audit of financial statements are
I. To obtain reasonable assurance about whether the financial statements as a
whole are free from material misstatement, whether caused by fraud or error.
II. To report on the financial statements.
III. To obtain conclusive rather than persuasive evidence.

IV. To detect all misstatements, whether due to fraud or error.
A. I and II only
B. II and IV only
C. I, II, and III only
D. I, II, III, and IV
13. The auditor is required to maintain professional skepticism throughout the audit. Which
of the following statements concerning professional skepticism is false?
A. A belief that management and those charged with governance are honest and have
integrity relieves the auditor of the need to maintain professional skepticism.
B. Maintaining professional skepticism throughout the audit reduces the risk of using
inappropriate assumptions in determining the nature, timing, and extent of the audit
procedures and evaluating the results thereof.
C. Professional skepticism is necessary to the critical assessment of audit evidence.
D. Professional skepticism is an attitude that includes questioning contradictory audit
evidence obtained.
14. Operational audits generally have been conducted by internal and COA auditors, but
may be performed by certified public accountants. A primary purpose of an operational
audit is to provide
A. A measure of management performance in meeting organizational goals.
B. The results of internal examinations of financial and accounting matters to a
company’s
top-level management.
C. Aid to the independent auditor, who is conducting the examination of the financial
statements.
D. A means of assurance that internal accounting controls are functioning as planned.
15. Operational auditing is primarily oriented toward

A. Future improvements to accomplish the goals of management.
B. The accuracy of data reflected in management’s financial records
C. The verification that a company’s financial statements are fairly presented.
D. Past protection provided by existing internal control.
16. An objective of a performance audit is to determine whether an entity’s

A. Operational information is in accordance with government auditing standards.
B. Specific operating units are functioning economically and efficiently
C. Financial statements present fairly the results of operations.
D. Internal control is adequately operating as designed.
17. Which of the following terms best describe the audit of a taxpayer’s return by a BIR
auditor?
A. Operational audit
B. Compliance audit
C. Internal audit
D. Government audit
18. Governmental auditing often extends beyond examinations leading to the expression of
opinion on the fairness of financial presentation and includes audits of efficiency,
economy, effectiveness, and also
A. Accuracy.
B. Evaluation.
C. Compliance
D. Internal control
19. What is the proper organizational role of internal auditing?

A. To serve as an independent, objective assurance and consulting activity that adds
value to operations
B. To assist the external auditor in order to reduce external audit fees
C. To perform studies to assist in the attainment of more efficient operations.
D. To serve as the investigative arm of the audit committee of the board of directors.
20. The internal auditing department’s responsibility for deterring fraud is to

A. Establish an effective internal control system.
B. Maintain internal control.
C. Examine and evaluate the system of internal control.
D. Exercise operating authority over fraud prevention activities.
21. In general, internal auditors’ independence will be greatest when they report directly to
the
A. Financial vice-president
B. Corporate stockholders.
C. Corporate controller.
D. Audit committee of the board of directors
22. Internal auditors review the adequacy of the company’s internal control system primarily
to
A. Help determine the nature, timing, and extent of tests necessary to achieve
audit objectives.
B. Determine whether the internal control system provides reasonable assurance that
the company’s objectives and goals are met efficiently and economically
C. Ensure that material weaknesses in the system of internal control are corrected.
D. Determine whether the internal control system ensures that financial statements
are fairly presented.
23. A practitioner is associated with financial information when

I. The practitioner attaches a report to that financial information.
II. The practitioner consents to the use of his/her name in a professional connection.
A. I only
B. II only
C. Either I or II
D. Neither I nor II
24. Which of the following attributes is more closely associated with attestation services
performed by a CPA firm than with other lines of professional work?
A. Competence.
B. Integrity.
C. Keeping informed on current professional developments.
D. Independence
25. Which of the following procedures is not included in a review engagement of an entity?
A. Inquiries of management
B. Inquiries regarding significant events subsequent to the balance sheet date
C. Any procedures designed to identify relationships among data that appear to be
unusual
D. A study and evaluation of internal control

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AUDITING AND ASSURANCE PRINCIPLES

1. The practice of Accountancy includes

3. A proposed assurance engagement can be accepted when the practitioner’s preliminary

4. A practitioner should accept an assurance engagement only if

5. Assurance services are best described as

6. How many separate parties are involved in an assurance engagement?

7. When performing an assurance service, professional accountants use standards or

8. Which of the following statements is true concerning evidence in an assurance

9. Relevant criteria contribute to conclusion that are

10. Criteria that are embodied in laws or regulations, or issued by authorized or

11. The purpose of an audit of financial statements is to

III. To obtain conclusive rather than persuasive evidence.

15. Operational auditing is primarily oriented toward

16. An objective of a performance audit is to determine whether an entity’s

19. What is the proper organizational role of internal auditing?

20. The internal auditing department’s responsibility for deterring fraud is to

23. A practitioner is associated with financial information when

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